British forces began a full-scale artillery assault on Basra, Iraq's second largest city, yesterday amid dramatic reports that a popular revolt to unseat Saddam Hussein's loyalists had begun.

US and British planes dropped a 1,000lb satellite-guided bomb on the Ba'ath party headquarters in the heart of the city to begin an operation to wipe out the city's leadership.

As British heavy artillery pounded the outskirts of Basra, reports began to emerge of what was described as a "nascent" uprising.

Black Watch troops on the Shatt al-Arab waterway said they had seen Iraqi artillery firing at their own people. Large crowds were said to be gathering on the streets.

A British officer quoted in pooled reports said: "We have seen a large crowd on the streets. The Iraqis are firing their own artillery at their own people. There will be carnage."

Pressure to intervene increased when the Iraqi forces were seen directing horizontal artillery fire at the crowd.

Al Lockwood, a British military spokesman in Qatar, said there had been an "uprising" in Basra against the Ba'ath party. He said that according to reports: "The Shia population attempted to attack the ruling party. The ruling party responded by firing mortars."

It is not known how many casualties were caused by the artillery fire, which British forces described as "horrific".

Tank commanders from the Black Watch battle group who wanted to intervene had to be restrained by their officers, while the risks of causing further civilian casualties were assessed.

Major-General Peter Wall, the British deputy commander of the war, reacted to news of an uprising by saying it was "just the sort of encouraging indication we have been looking for". But he added: "To avoid any excessive optimism at this stage I should say we don't have any absolutely clear indication of the scale and scope of this uprising or exactly what has engendered it.

A further cautionary note was sounded by a correspondent for the Arab television network al-Jazeera, who is reporting from inside the city. He denied that any uprising had taken place.

A popular uprising would be a huge boost to Britain and the US, who have insisted their troops are liberators, not invaders.

Further north, the Pentagon last night reported that US troops had fought one of the biggest land battles of the war on the banks of the Euphrates river, killing about 300 Iraqi soldiers in an intense exchange of fire through a blinding sandstorm.

The battle took place near the Shia sacred town of Najaf, and took place as the US 7th Cavalry were moving north alongside the Euphrates.

Pentagon officials said all the Iraqi troops had been foot soldiers but it was not clear whether they were the southernmost units of the Medina Division of the Republican Guard defending Baghdad, or paramilitary Fedayeen fighters.

American and British forces are now massed on the edges of Iraq's two main cities, Baghdad and Basra. US warplanes yesterday inflicted a second day of intense bombing on lines of President Saddam's Republican Guard south of Baghdad.

As dawn was breaking, the centre of Baghdad was rocked by dozens of explosions after a five-hour lull in the bombing. Smoke was seen coming from the area where the Ministry of Information building and television station are located.

Heavy artillery from 7 Armoured Brigade, the Desert Rats, was positioned to the north, south and west of Basra, a strategic port city. Artillery, including 155mm AS90 howitzers, manned by the 3rd Regiment Royal Horse Artillery, fired at Iraqi mortar positions throughout the night.

Although British forces had planned only to surround and contain Basra, military officials said they had decided to ratchet up operations to tackle a new concentration of military forces in the city.

Colonel Chris Vernon, a British military spokesman in Kuwait, said troops would seize "tactical opportunities" to strike into Basra, but admitted it would be difficult to win the support of locals while the fighting was under way.

He said soldiers at the front around Basra had reported that Iraqi paramilitaries were shielding themselves behind Iraqi civilians as they attacked British forces. Many of these people rose up after the 1991 Gulf war when Shia communities in Basra and other cities revolted against President Saddam's rule, but were quashed after the west failed to support them.

"The people are pretty, pretty scared and we have to gain the confidence of them," Col Vernon said. "We'll help [any uprising] every which way we can."

Royal Marines from 3 Commando were also in the area to support the operations. Undercover intelligence officers have been working in Basra for weeks to foment a popular movement.

On the main front south of Baghdad, US and British aircraft dropped thousands of bombs through a sandstorm on the Medina Division of the Republican Guard, one of President Saddam's strongest units. The division stands in the way of the main US armoured force, the 3rd Infantry, on the road to the capital.

The US chairman of the joint chiefs of staff, General Richard Myers, said there had been more than 1,000 sorties in 24 hours; half of them were aimed at the Republican Guard. But US officials said the rate of sorties would die down today as the storms hit their airfields.